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The Present Value of `Full Faith and Credit’, Which the Republicans Want to Destroy

By: allan Friday May 27, 2011 9:08 pm

Like spoiled children who are about to be punished, Mitch McConnell, John Boehner and the rest of the Republican wrecking crew want to destroy $3 trillion of America’s wealth.

The wealth in question is the present value of the `full faith and credit’ of the United Sates of America, the guarantee that holders of Federal debt will be paid off in full. The `full faith and credit’ has been built up over two centuries, through wars, recessions and depressions, and is a national treasure, belonging to all of  the American people.

However, `full faith and credit’ is not just a touchy-feely concept. It has a definite value in hard, green cash, amounting to $10,000 for every person in America. If, as the Republicans threaten to bring about,  the Federal government defaults on its obligations, even briefly, the coveted AAA rating of US bills, notes and bonds will disappear, almost certainly forever. Even if debt payments resume, it is likely that the rating of US debt will be impaired for years, leaving a toxic financial legacy for the children and grandchildren that the GOP claims to act on behalf of.

So, a talking point that any half-competent Democrat should be using is,

The Republicans want to destroy $3 trillion in national wealth overnight, stealing $10,000 from every man, woman and child in America.

The back-of-the-envelope calculation follows. (This  answers a question I raised in a comment on Scarecrow’s diary this morning.  I’m sure that someone with more knowledge of finance or economics can do a better job of this, but it’s good enough to serve its purpose.)

Amount of outstanding US government debt: $14 trillion

Average maturity of US debt:   5 years

Interest rate on 5 year US Treasury notes:   1.72%

Interest rate on 5 year high yield corporate debt: 6%

(This last is a reasonable approximation, pulled from the previous link. The high yield (sub-investment grade, a/k/a junk bond) market covers an incredibly wide range of companies. But it is a decent figure to use, and if anything is  too low: most high yield bonds never default. A defaulting sovereign state, even the USA, would probably need to pay even higher interest rates.)

Debt service on US debt at current interest rate: $14 trillion x .0172 = $240 billion/year

Debt service on US debt at junk interest rate: $14 trillion x .06 = $840 billion/year

Savings due to `full faith and credit’ of the US government:  $840 – $240 = $600 billion/year

Total current value of `full faith and credit’ = $600 billion/year x 5 years = $3 trillion

Value per American = $3 trillion / 300 million people = $10,000 / person

Heckuva job, Miss McConnell and Tanman.


Like Lambs to a Slaughter

By: allan Friday December 17, 2010 1:44 pm

The 28th Congressional district of New York starts in  Buffalo, passes through the  hard luck city of Niagara Falls, moves eastward along the sparsely populated Lake Ontario shoreline and ends in the suburbs and city of Rochester. The district is 40% minority and its median household income  of  $37,858 is 27% below the national average. Job creation has been at a standstill in the 28th for years, as it has been throughout New York State, with manufacturing being particularly hard hit.

It would only be natural  for a district like this to elect a liberal Democrat. In the case of NY-28, that liberal Democrat is Louise Slaughter.

And,  this week, Rep. Slaughter has had a problem.

You see, Louise  has had to wear two hats. Some of the time, she needed  to be the liberal representative of a poor district going through very tough times, while at others she has had to be the powerful chairwoman of the  House Committee on Rules, which is a choke point for bills and amendments in the House, and do the bidding of the White House and Democratic leadership.

When  Brad Sherman and Lloyd Doggett tried to change the 2% payroll tax holiday that threatens the future of Social Security, Louise Slaughter made sure that they were crushed.

Once the rule passed from the Rules Committee to the House floor,  the crucial rule vote was #644, and like 213 of her Democratic colleagues, Louise voted for it, making the passage of the Senate version of the tax cuts a done deal.

But with the heavy lifting out of the way, Louise put on her progressive bonnet. When the final vote on the bill took place, she (like many of her colleagues) scurried from “Yea” to “Nay”, casting a meaningless vote against what is arguably the worst bill passed by the 111th Congress.

And then she had to tell everyone about it. On her congressional home page, where Louise trumpeted,

This evening, I will vote against extension of the Bush Tax Cuts of 2001 due to expire December 31 of this year. The bill, for the first time since Social Security was signed in 1935, interferes with the revenue stream that funds Social Security. The example being set by not allowing the Bush tax cuts to expire convinces me that this ‘temporary’ disruption will also not be allowed to expire in an election year.

Secondly, the addition of $858 billion to the debt to provide tax cuts to the top 2 percent of Americans, and an estate tax that costs $25 billion to benefit 6,600 families, is an atrocious giveaway in a nation riddled with debt and unemployment.

She repeated the same in a DailyKos diary , and in statements to Western New York media outlets, and to anyone who would listen.

It’s too bad she didn’t put her beliefs to work, when they mattered.

It’s too bad she didn’t represent the vast majority of her constituents, when they needed her.

Boil, Boil, Toil and Bubble

By: allan Sunday October 10, 2010 12:02 pm

Two stories on two seemingly very different subjects. But they point in the same direction.
Apparently suffering from the same hubris that Greenspan and Co. had less than a decade ago,
Very Serious People™ have yet again headed the financial system on an unsustainable trajectory.
And, as last time, the Little People will bear the brunt of the elite’s folly

What Does the Boom in Mergers&Acquisitions Tell Us?

Money & Company: We’ve seen a mini-boom in mergers and acquisitions of companies — do you think that is just ramping up or about to peter out?

Jeff Werbalowsky: I would say that there’s an artificially induced component because of the probable expiration of the capital gains tax rate. Our deal flow really has got a flavor of, “‘Let’s get it done by the end of the year, because who knows what the tax law will be next year.’”

But in addition to that, there is such a desperate hunger for yield that money is fairly abundant….

Now we’re seeing this weird recovery that I’ve never experienced before, where confidence in the financial system has returned in spades, fears have all but vanished and there is an unimaginable volume of nearly free money that is on a yield-hunting mission.

Dollar slump drives emerging markets, gold ETFs;
Hot money chases precious metals, commodities, other currency hedges

Activity in exchange-traded funds that target emerging markets, precious metals and commodities is ramping up as investors seek ways to protect their portfolios from a sagging U.S. dollar….

Many investors are “concerned that the probable escalation of quantitative easing and potential ‘currency wars’ will lead to a marked devaluation of paper assets,” said J.P. Morgan in an Oct. 7 research note….

In another sign of rising inflation expectations, agriculture and soft-commodities ETFs have started October with a fierce rally. For example, iPath Dow Jones-UBS Grains Subindex Total Return (JJG 47.38, +4.48, +10.44%) jumped more than 10% last week. Cheap money is likely providing fuel to commodities

Investors have also been stuffing cash into emerging markets ETFs that stand to benefit from strength in commodity prices. Interest rates in many developed countries are near zero, while some emerging economies are offering better yields and growth.

The Bernanke Bubble

The common thread in these stories is the dangerous amount of liquidity sloshing around the US financial markets, looking for return in a near zero interest rate environment. From retirees who were counting on a safe 5% a year to fund their golden years (hah), to life and casualty insurers who are having a time seeing how their business model works when ten year Treasuries yield 2.47%, to dentists in Des Moines who don’t see how .01% on a money market account counts as investing, there is a desperate race on to throw money at asset classes that not long ago would have been considered too risky.

High yield bonds. Emerging markets. Commodity ETFs. M&A smoke and mirrors.

Apparently wanting to outdo his predecessor in the record books,
Ben Bernanke is presiding over one of the great asset bubbles of all times.
As the saying goes, this will end badly.
And we will again be told that no one could have expected.
But don’t take my word for it:

Pimco’s El-Erian Says ‘Peace’ Being Lost

Policy makers are losing the peace two years after thwarting a worldwide economic catastrophe, the chief executive of the world’s biggest bond investor said Sunday….

Separately, El-Erian said that the market has already priced in another round of so-called quantitative easing by the Federal Reserve…

Many economists expect the Fed to boost the money supply with another round of debt-buying when policy makers meet in November.

El-Erian said that the test for the markets will be if quantitative easing is effective in helping the economy, and not in just pushing up asset prices.

Effective in helping the real economy?

What is this guy, a socialist?

Even the Liberal Alan Dershowitz

By: allan Saturday May 29, 2010 9:26 am

One of the delights of modern journalism is to see how, as editor of the New York Times Book Review,
the neocon Sam Tanenhaus assigns books by liberals to be reviewed by conservatives.
Read, if you must, George Will’s "review" of Rick Perlstein’s Nixonland , which is more about Will’s posing as a hard-eyed realist than it is about Perlstein’s book. A typical line:

But Perlstein’s high-energy — sometimes too energetic — romp of a book also serves, inadvertently, a serious need: it corrects the cultural hypochondria to which many Americans, including Perlstein, are prone.

But in the interest of fair-and-balancedness, Mr. Tanenhaus assigns books by conservatives or neocons to be reviewed by conservatives or neocons.

For an example of this, we have ultraliberal Harvard professor neocon torture advocate Alan Dershowitz
reviewing Necessary Secrets by Gabriel Schoenfeld of the neocon Hudson Institute. Dershowitz thinks that torture works and is O.K., if practiced in moderation on the right sorts of people, so it is not surprising that he buys into the Bush 44 right-wing narrative on the importance of keeping secrets secret until they are safely in the category of fodder for history Ph.D. theses.

Schoenfeld seems to acknowledge that The New York Times was right to publish the Pentagon Papers when it did, since these papers were largely an account of past mistakes leading up to a controversial war. But he makes a strong case that The Times was probably wrong in publishing “an article revealing the existence of a highly classified N.S.A. program designed to tap Al Qaeda phone calls and e-mails,” since disclosure of the program may well have caused Al Qaeda to change its methods of communication.

James Risen, feel the love.

And what would a bad-faith review be without a few strawmen thrown into the argument?

Schoenfeld is scrupulously honest in assessing the real costs and benefits of unilateral decisions by the press. It has become an article of faith among some civil liberty absolutists to deny that there are any costs associated with disclosing secrets like the National Security Agency’s high-tech program. This is part of a more general mantra of denial that covers other contentious issues as well: torture never produces actionable intelligence; capital punishment never deters; censorship never prevents harm; and a national identification system would never stop any terrorist. Each of these claims is highly questionable.

And each of these claims has never been made, but, whatever.

Finally, what we must not forget to punch the DFH bloggers:

Schoenfeld’s understandable focus on The Times and other newspapers plays down the emergence of the Internet and the competition it provides to the traditional print press, which is far more responsible for what it publishes than are Web writers. It is also subject to after-the-fact punishment, as the Supreme Court made clear when it refused to impose prior restraint on the publication of the Pentagon Papers. The Internet, on the other hand, includes anonymous “publishers” who are accountable to no one and yet have the power to reveal secrets with impunity, if not always with credibility.

Dershowitz’ review says more about the reviewer, the editor who chose him for the piece, and the publisher
who hired that editor than it does about the ostensible subject of the review.
We can all look forward to John Yoo’s NYT review of Stuart Taylor’s biography of John Roberts.

Throw Momma From the Train, Part Deux: A Modest Proposal

By: allan Saturday December 12, 2009 5:00 pm

Train-DeVito-Crystal_lSen. Byron Dorgan’s attempt to holdup Senate debate on the health care bill suggests another tactic that could be used to extort a better bill from the world’s greatest deliberative body, if any senator has the cojones.

On Dec. 31, George Bush’s decade-long estate tax giveaway to the rich, which was rammed through (using reconciliation , Harry) is scheduled to reach its final, going-Galt phase. For the calendar year of 2010, the estate tax exemption will be raised to infinity: for all intents and purposes, there will be no estate tax. However, because the Bush tax cut was passed using reconciliation, the bill expires after 10 years, meaning that on Jan. 1, 2011, the exemption goes back down to its pre-2001 level of $1 million (effectively, $2 million per couple).

Long, long ago, in a galaxy far, far away, even before Rudy was America’s Mayor, some guy writing a column in the New York Times had this nailed:

So in the law as now written, heirs to great wealth face the following situation: If your ailing mother passes away on Dec. 30, 2010, you inherit her estate tax-free. But if she makes it to Jan. 1, 2011, half the estate will be taxed away. That creates some interesting incentives. Maybe they should have called it the Throw Momma From the Train Act of 2001.

Which brings us to today. On Dec. 3, the House voted for H.R. 4154, the "Permanent Estate Tax Relief for Families, Farmers and Small Businesses", which would retain this year’s exemption of $3.5 million ($7 million per couple) going forward. However, the Senate has yet to act . Meaning, that if nothing happens, on Jan. 1 the CDC might start detecting an epidemic of accidents, with a most peculiar socio-economic distribution.

There are now two kinds of rich people: elderly rich people, and their heirs, and as Prof. Krugman pointed out, there are some interesting incentives at play. If the Senate fails to pass the bill, and you are old and rich and someone other than Harvard, Yale or Princeton stands to benefit from your demise, you might want to think about changing the locks on the bedroom door, getting a mechanic to check the brakes on your Bentley, and hiring some recently unemployed mercs for personal protection. Especially if your last name is Murdoch or Walton.

So, here is a modest proposal: A progressive senator needs to follow in Dorgan’s footsteps and delay any consideration of the Senate equivalent of H.R. 4154 until Harry Reid’s health care flavor-of-the-day has been changed to Medicare For All. Who knows, maybe even moderate sensibly centrist fiscal conservatives like Blanche Lincoln and Ben Nelson might change their tune, once their private Blackberries start buzzing with calls from the Forbes 400.

Senate Moderates Moderately in the Hole to the Insurance Industry

By: allan Saturday August 15, 2009 9:16 am

Max Baucus, Ben Nelson, Joe Lieberman, Chuck Grassley, Susan Collins, Olympia Snowe.
Names synonomous in the MSM with sensibly centrist moderation.
Senators whose opinions on health care insurance reform we should all carefully listen to.
And senators who are in the hole to some of the richest, highest paid insurance CEOs in the country world.

Ronald Williams is CEO of Aetna. Last year, he had a pay package worth $17.4 million .
In the 2006 and 2008 election cycles, he contributed $4,100 to Joe Lieberman, $2,000 (or $4,000 – there may be a duplication) to Ben Nelson, $1,000 to Susan Collins and $1,000 to Olympia Snowe.

Angela Braly, CEO of WellPoint, had a pay package worth $9.8 million .
She contributed $2,000 to Chuck Grassley, $2,300 to the ever-mavericky John McCain,
and threw in another $10,000 to the NRSC.

Michael McCallister, CEO of Humana, had a pay package worth $5.2 million .
He contributed $2,000 to Max Baucus, $2,000 to Mark Warner, $1,500 to Orrin Hatch,
and what appear to be a large number of small contributions to Humana’s PAC.

What will we tell the children?

The Party That Must Not Be Named, part 647

By: allan Saturday August 8, 2009 7:25 am

Another snapshot of the state of modern journalism, and of the party of family values, western New York style:

From the AP :

BUFFALO, N.Y. — A retired state Supreme Court judge who procured prostitutes for his social club, including one woman who had appeared before him in court and another who was in the country illegally, was sentenced Friday to 18 months in prison.

Ronald Tills, who also served in the state Assembly and was a Court of Claims judge, was given the prison term and fined $25,000 after telling the sentencing judge he was embarrassed by his behavior and prays for the women he victimized.

I know this will shock all of you, but the AP article fails to mentionTills’ party affiliation.

Searching elsewhere picks up this tidbit from

Local political pundits recall how Tills hired Thomas Reynolds of Springville — who eventually went on to become a congressman – to run his re-election campaign in 1972. After Tills was re-elected, Reynolds was hired as a member of Tills’ Assembly staff, which Reynolds was quoted at one time saying helped him in starting "my own career in government and public service," causing Reynolds to say that he will "be forever grateful for Ron’s guidance, counsel and friendship."

Tills was nominated by Governor George E. Pataki and confirmed by the New York State Senate to the New York State Court of Claims in July of 1995, where he served as a court of claim judge and an acting Supreme Court justice.

Gee, I wonder what party Tills belongs to?